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Dollar General Stock Is a Buy After Earnings. Evercore Sees a Bargain.Dollar General Stock Is a Buy After Earnings. Evercore Sees a Bargain.Rivas, Teresa.Barron's (Online); New York Dollar General stock slumped after the discounter reported downbeat earnings results last week, but Evercore ISI argues that the shares are a real bargain. Analyst Michael Montani boosted his rating on Dollar General (ticker: DG) to Outperform from In Line. At current levels for the stock, the balance of risks and potential gains looks "compelling at a 20% discount to the S&P 500," he said. Dollar General was a major pandemic winner . It was one of the first retailers to see a boost from consumers stocking up in response to the initial waves of lockdowns, and the value its stores offer was appealing as unemployment soared and the economic outlook became less certain. Yet that tailwind has become a headwind as the economy reopens and heats up. Investors are worried over how the company's results will look in comparison with the stellar numbers it turned in for the start of the pandemic in the U.S. Guidance from management for the full year has been conservative, doing little to dispel those concerns. Montani acknowledged that risks remain. Not only will year-over-year comparisons be tougher in the coming months, but there is upward pressure on labor and transportation costs as well. Yet because investors' now expect less, he thinks that Dollar General can easily perform better than anticipated, which would help the stock, he said. Moreover, the company has a record of weathering various economic cycles. "Dollar General is a solid executor and defensive growth compounder that gained customers and share since the pandemic," he wrote, highlighting the chain's continuing investment in a variety of sales channels and store growth. At least some of the slowdown last quarter was likely attributable to harsh winter weather, he said, arguing it will prove to be a "blip," especially as the company offers more fresh produce, expands curbside pickup options, and remodels stores. Improving traffic will show that the shares deserve to trade at a premium, he wrote. Dollar General was up 3% to $193.49 in afternoon trading. The shares have rallied 38.3% in the past 12 months, but are 8% lower year to date. |
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